Oct 13, 2009

Enticing the market - IPO Advertising

As recession has started showing signs of giving way to better times, the IPOs have started coming back. While there is the discussion on IPO valuation, company prospects and other such aspects, I am particularly amused by their TV advertisements.

It is one thing to make a cricketer wax eloquent about an insurance product or a movie star speak about a soap or a phone network. But it certainly needs creativity to make advertisements for things like a power plant or a shipyard or even oil drilling.

And what exactly is the objective of these advertisements? Imagine this scene...

"The board room is in complete silence - pin-drop silence.

The Chief Investment Officer of the big investment company has sweat on his brow. His heart is racing. 2 of his last 6 decisions had failed to enthuse the Chairman. This might be a make or break decision for him. He was not sure what went wrong. He genuinely thought they would have been correct. 

They are watching the top business news channel. They are impatient as the news about current market goes on. They are waiting for the moment. The much awaited break comes and the chairman says "Shhhh".

The entire board room turns to the TV as the first images come of a desert. Then the huge windmills across the landscape. Finally the hero - the CEO of the wind-mill generators climbs atop the windmill and sings ...
"I have got the wind power, 
So I climbed on the tower,
Our IPO is on the market,
Apply and earn $$ by the hour!" 

And the chairman shrieks in ecstasy, "Yes! Yes! We will invest in this company. I love this guy with exactly 4 strands of grey hair. His red tie and the redness of his eyes tell how many nights he has been awake busy assessing the value of his own company. His suit is from Paris and shoes from  Milan. We will invest!"

The Chief Investment Officer heaves a sigh of relief. The board has concurred with his decision. Thank God for the wonderfully towery ad...."

Or perhaps the retail investor chooses IPOs just like he chooses the paint for his home or the next bottle of shampoo. "No, I don't like that this company chose to have 2 kids instead of 20 in their ad for hotels. I will not invest in this one."

Are there any Return-on-IPO-Marketing numbers that prove that IPO advertising has led to more applications? In general, when almost every IPO has subscriptions in multiples of the floated share, does it matter if it is advertised or not?

As long as it is discussed in the business news, I think the interested investors (institutional or retail) will decide yes or no. Of course, there is the question of valuations and order books but that is a fundamental need.

Endpiece - The best part of any IPO (or NFO) ad is the last 0.5seconds when the narrator reads at supersonic speed..."Investments are subject to market risks. Please read the red herring prospectus...".

That is like those 2.5 font asterisk notes by the humongous million rupee assured prize offer ads*

* Conditions Apply. The prize is assured to 1 in million customers. :D


Paddy Killimangalam said...

The funniest pre-IPO ad I've seen is Pipavav's ad of school children going on a tour of the shipyard. Someone wanting to invest might have been turned off by the cheesy idea.

Siddharth said...

@Paddy - :)

ashutosh said...

Institutional investor may not but some retail investors do get lured by advertisements (even in case of IPO). Plus i feel the companies try to show that they have some brand value.
Liked the point about 2.5 font asterisk note...
All in all IPO adds hardly make much difference.


Siddharth said...

@Ashutosh - The point is what proportion of retail investors? As you said, I think it is a waste of money. Just make sure it is discussed in the business news.


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